Windstream 2014 Annual Report Download - page 192

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-76
11. Income Taxes, Continued:
We establish valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. Therefore, as
of December 31, 2014 and 2013, we recorded valuation allowances of $94.9 million and $84.9 million, respectively, related to
federal and state loss carryforwards which are expected to expire before they are utilized. The amount of federal tax credit
carryforward at December 31, 2014 and 2013, was approximately $34.6 million and $22.6 million, respectively, which expire in
varying amounts from 2031 through 2034. The amount of state tax credit carryforward at December 31, 2014 and 2013, was
approximately $24.1 million and $22.2 million, respectively, which expire in varying amounts from 2015 through 2027.
We account for uncertainty in taxes in accordance with authoritative guidance. A reconciliation of the unrecognized tax benefits
is as follows:
(Millions) 2014 2013 2012
Beginning balance $ 4.6 $ 18.3 $ 18.8
Additions based on tax positions related to current year 2.3 2.7 —
Additions based on tax positions of prior years — 0.7 —
Reductions for tax positions of prior years (0.1)(0.2)(0.5)
Reduction as a result of a lapse of the applicable statute of
limitations (0.2)(16.9)—
Settlements (1.0)— —
Ending balance $ 5.6 $ 4.6 $ 18.3
We do not expect or anticipate a significant increase or decrease over the next twelve months in the unrecognized tax benefits
reported above. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate are $5.0
million, $3.4 million and $16.1 million (net of indirect benefits) for the years ended December 31, 2014, 2013 and 2012, respectively.
Included in the balance at December 31, 2014, 2013 and 2012, are $0.6 million, $0.6 million and $0.8 million, respectively, of
gross tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such
deductibility. Because of the impact of the deferred tax accounting, other than interest and penalties, the disallowance of the shorter
deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority
to an earlier period. These unrecognized tax benefits are included in other long-term liabilities in the accompanying consolidated
balance sheets for the years ended December 31, 2014 and 2013.
We file income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, we are no longer subject to
U.S. federal, state and local income tax examinations by tax authorities for years prior to 2011. However, due to acquired net
operating losses, tax authorities have the ability to adjust those net operating losses related to closed years. We have identified
Arkansas, California, Florida, Georgia, Illinois, Iowa, Kentucky, Nebraska, New York, North Carolina, Pennsylvania, Texas and
Virginia as “major” state taxing jurisdictions.
We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. During
the years ended December 31, 2014, 2013 and 2012, we recognized approximately $0.1 million, $0.1 million and $0.6 million in
interest and penalties, respectively. Furthermore, we had approximately $0.1 million, $0.1 million and $3.1 million of interest and
penalties accrued as of December 31, 2014, 2013 and 2012, respectively.